68K in no interest savings accounts- need help

[Snydley]

Hi-
We need to start making some money on this money- I would say 45K of the 68K is EF. I-bonds, Ally 12 month CD vs savings, what are y'all doing that you like best?

thanks

[scfr]

The Ally 1-yr CD is looking good. I have not personally bit on that one yet but I may.

If you want to wait to lock in a CD (expecting rates to go up even higher) there are several savings accounts at 1.40% or higher. I've been happy with Marcus (formerly GS Bank) and PurePoint Financial. Take a peek at the DepositAccounts.com web site for other options.

I personally like I-Bonds and have a small amount, but have not added any for awhile because DH has a bias against them and I pick my battles (and this particular battle is not one I choose to pick). DepositAccounts has some good articles on I bonds. Do you already have a TreasuryDirect account set up? I've had mine for so long that I have forgotten all of the details, but I believe it has more requirements and takes longer than opening up a regular bank account. My personal experience has been that the Treasury end of year statements are slow to be issued, so if getting your taxes done super quick is important to you consider yourself warned.

[tripods68]

Hi-
We need to start making some money on this money- I would say 45K of the 68K is EF. I-bonds, Ally 12 month CD vs savings, what are y'all doing that you like best?

thanks

Do you have a purpose what this money will be used for? Is this your EF or college savings?

[Joan.of.the.Arch]

If you want to keep it insured and very available with no penalty for withdrawal, I encourage you to look for interest bearing checking accounts and do some finagling to meet the requirements such as direct deposits / direct withdrawals, or debit card usage.

Dividing up among four such accounts, my spouse and I have been able to find accounts earning 2% - 4% ever since the Great Recession. I have used a combination of paying attention to local advertising and bankrate.com to find good rates and terms. Bankrate can help you understand the health of the institution, too.

[Snydley]

Do you have a purpose what this money will be used for? Is this your EF or college savings?

We'd call 45K of it EF, and the rest, not sure. My income is increasing in 2018 so we could start putting money into college savings (our plan is to pay off our house and be debt free before DD starts college in 7.5 years, but having some $ put aside would be great too).

I think DH wants the 45K to be immediately accessible if needed.

thanks

[Jluke]

EF
Tier 1: credit card
Tier 2: $x at CapOne360*
Tier 3: $y in taxable investment
Tier 4: Roth IRA

I don’t bother with CDs
*account can cover maxing credit card three times.

Having 45k readily available is extreme but it is your money. I would challenge you to come up with a tiered system so you can make your money work for you.

Another challenge is to minimize your interest earned and utilize investing for dividends (qualified dividends) so you pay less in taxes and would also be able to do some tax loss harvesting.

However, if your goal is to payoff the mortgage then maybe now is a good time to use the extra $23k towards that.

[Gailete]

I don't know how much in time that EF of $45K would last, but having it in a CD means you would have to pay a fee to get to it if needed. I use my Roth IRA as my 'savings' account since the interest from dividends, etc. grows tax free and you can tap the original amount you put in without penalty. So you can have that money growing at a faster clip than your would for a regular savings account. I too encourage you to look into CapitalOne 360 which is where I have my money. Yes I understand that you could lose some of the value of the money temporarily, but then you may never need to access that money for an emergency either. At capital One in the Roth IRA if you use that, or in a regular Sharebuilder account, money that isn't invested but waiting to be invested earns interest in a money market account. We are so behind in saving for retirement, I am taking the bold step of having everything invested for maximum increase. If you aren't late to the party, then you may want to be more conservative.

You didn't mention if you had other outstanding bills besides your house, nor how much you owe on your house, I would definitely look at paying off bills and making significant inroads into your mortgage. That is an investment that pays back a lot as you are saving on paying interest significantly. Once your home is paid for, then that burden is off your back other than fire insurance, property taxes, what used to be going to your mortgage can now be invested into other things or spent or given away. Not saying that you would want to give it all away, but a chance to make a generous gift to a charity that you feel strongly about.

[kork13]

I'm personally a fan of using I-Bonds. My entire EF (except ~$2k) is in I-Bonds that range from 1 year to 8 years old.
- They're accessible after 1 year, and earn interest for up to 30 years.
- Low 3-month penalty after 1 year, and the penalty goes away after 5 years.
- Typically earn a little bit more than (or at least roughly the same as) market CDs
- Adjusted for inflation, so your EF won't lose spending power
- Interest can be tax deferred (if you'd like... you can also pay the taxes annually)
- Quick and relatively easy to cash out within ~3 days

There are a few downsides to be aware of.
- You can only buy $10k/yr per person... but if you're married & have kids, that shouldn't be a huge hurdle, especially at year's end -- you can buy $10k for yourself, $10k for DH, then in 2018 (days from now) you can buy $10k more for each of you. If you have kids, you can buy more in their names as well.
- There's no hiding the fact that navigating the TreasuryDirect site is a pain in the butt. It's okay for basic transactions (buy/sell/login/view balances), but for anything more significant (add bank accounts, locked out/need password reset, etc.) it'll be a bit aggravating.
- The 1-year minimum holding period needs to be understood and mitigated... Your EF money in new I-Bonds is 100% inaccessible until you've owned the bonds for at least 1 year. So it's generally a good idea to stagger your I-Bond purchases over at least 1-3 years.

Beyond I-Bonds, I'd recommend just using a taxable investment account, if you don't have a near-term (within 1-3 years) need for the money. You can adjust your asset allocation to be more or less risky based on what you can tolerate, and you'll likely earn well more than what you'll get in any bank account. Understand the risks, and keep sufficient cash reserves, but otherwise, I'm an advocate of investing excess funds.

[corn18]

I have enough taxable to cover my EF many times over so I don’t really need an EF anymore. I have enough Roth savings to cover my EF many times over so I don’t really need an EF anymore. I have enough extra income each month to cash flow pretty much cover anything except a job loss so I don’t really need an EF anymore. Yet I still have $50k sitting in a checking account. I used to fret over it because it could be earning more 1% or 2% but not so much anymore. It’s there mostly for my wife in case I die unexpectedly. Peace of mind for her and me. So I just keep it in a checking account and sleep very well at night.

[LivingAlmostLarge]

I have currently $150k in cash. Literally sitting in checking account with capitol one. Yes it's losing money. But right now we have a lot of things we need to figure out. We are doing renovations and I want to have the cash for that $40k left. We have a large tax bill coming due $20k I think. We just bought a car and financed it but was debating paying cash. We're also debating college savings at this time. We really need to sit and plan the future in the next 3 months.

Goals are pay off car? College? Invest more? House? Taxes? We had almost 3x that 6 months ago and then we bought a house. Yes it was losing money but we didn't want to lose our house DP. It sat for 2 years until we bought. We didn't also know when we'd find a house to buy. I am not comfortable losing money for the chance of making more. We have investments and enough risk in our taxable investment accounts and retirement accounts that keeping cash isn't a big deal.

Besides we out of our investments we are currently about 95% stocks/ETFs. So instead of 20% bonds we are keeping cash to flatten the risk of the portfolio. I believe in a 80/20 portfolio and DH agrees and we did more before but since we decided to go cash heavy we moved everything into equities. That way we are pushing for hard returns on money we can afford to lose.

This is not for everyone. Nor do I suggest people keep so much cash on hand. But we have a lot of things we are thinking about right now and I don't like accruing debt for.

[Gailete]

I have currently $150k in cash. Literally sitting in checking account with capitol one.

Why not at least put it in a savings account at Capital One and earn some interest on it? It is easy to transfer the money in savings into your checking account there when needed. At least you would be making something.

[LivingAlmostLarge]

the checking earns like 1% i think. I've been thinking about stuff we're planning on doing. We have a bit more work on house, college, retirement. I think we need to front load college soon.

[snafu]

@ snydley, I feel it's important to look at all the segments of the broad category 'savings' as sections of a pie graph of your total assets. It all needs to mesh with a plan for unemployment if employment seems unstable or protection for a health emergency which is always unanticipated.

What emergency does DH visualize that would need $ 45K. instantly? What is the current ATM withdraw setting? It takes 2 business days to get money from a Money Market account, CD, Bond or ETF Fund or highest interest electronic account.

What is your RISK ratio? Try a few on-line questionaries. Unless you are in transition, planning a major purchase, changing careers, returning to school etc. $ 68 K has lost long term, potential value. While inflation is technically 2% instant loss to you, I see 4% loss in the food category and depending on where you live, 3 - 5% in insurance premiums.

I see the value of keeping cash to cover 3 months of your most basic costs.
You could try it to see whether the results are uncomfortable. Do not keep massive amounts of cash in the home. It is not insurable!

[Snydley]

Thanks for all the great comments/insight.

Joan.of.the.arch- I'm impressed you found checking paying 2-4%! I will check out bankrate.com

Jluke- I don't understand your tier system- what does tier 1 mean (cc?)? I agree that 45K readily available is extreme for us at this point and DH is seems to be now in agreement.

Another challenge is to minimize your interest earned and utilize investing for dividends (qualified dividends) so you pay less in taxes and would also be able to do some tax loss harvesting.

I don't know what this means (finance is not my language).

---you and others mentioned paying down the mortgage. We paid 402K for the house in 2011 (now worth ~550K), we refinanced to a 15 year mortgage a few years ago- current balance is 235K, we are now paying an extra $1,600 a month on top of required payment to payoff in 5.5 years (we pay $4,500/mo for this hefty mortgage + insurance/taxes). We have minimal expenses otherwise (no student loans, cc, not even a car payment right now).

With my new increase in effort at work (from 75 to 100%) DH and I currently bring in ~270K (he makes 155K of this). The thing is I expect him to transition to a 1/2 time lower paying position in 2-3 years (going into semi-retirement in his early 50s, I am 43 with no plans to do this) and this could lower our total income to 200K or less. I want to be prepared for this financially and this includes paying for DD's college in 7.5 years, of which we currently have 0 dollars earmarked.

kork13- thank for the ibonds info. I think that sounds like a good plan for us, since you can use the $ after 1 year. Is it true that the rate is now 2.58% (higher than a CD, or does it work differently?)

snafu- your suggestion of 3 months expenses only in cash is a good one. Our jobs are both quite stable at this point.

We bought a 12month CD with Ally yesterday for 25K, as we have no use for that money in the next 12 months.

[Jluke]

Tier 1 is the credit card (cc) if I can put the expense on the rewards card.

Great job on the mortgage pay down. One word of caution is figure out how much of your net worth is in the house.

Rough math estimate. 500k Home would be 50% if your net worth is 1 million. That’s a lot of money to be tied up in your home. But no mortgage payment is nice too esp since you are getting closer to retirement.

Keep us updated.